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Global Leverage Adjustments, Uncertainty, and Country Institutional Strength

26 Pages Posted: 20 Mar 2017  

Gonul Colak

Hanken School of Economics

Ali Gungoraydinoglu

Florida International University (FIU)

Özde Öztekin

Florida International University (FIU)

Date Written: March 17, 2017

Abstract

Using a broad range of uncertainty measures, we show that uncertainty dramatically slows down firms’ adjustments toward their optimal capital structure. At the upper bound, the estimated speed of leverage adjustments almost halves when uncertainty is high. High quality institutions (common law legal origin, more disclosure to congress and/or to the public, and higher public sector ethics) and presidential political systems offset some of the adverse effects of uncertainty on leverage adjustments. The financial crisis has altered the relationships among uncertainty, adjustment speeds, and a country’s institutions; more so for countries with weak institutions and parliamentary systems.

Suggested Citation

Colak, Gonul and Gungoraydinoglu, Ali and Öztekin, Özde, Global Leverage Adjustments, Uncertainty, and Country Institutional Strength (March 17, 2017). Available at SSRN: https://ssrn.com/abstract=2934915

Gonul Colak

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Ali Gungoraydinoglu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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